The Australian Prudential Regulation Authority (APRA) has come out firmly on the side of professional indemnity (PI) insurers, insisting they have every right to refuse to handle losing business. Darryl Roberts, APRA’s Head of Enforcement, rejected media accusations that PI rises are the result of insurance companies trying to gain more profits, saying that insurers are actually losing money by providing PI products. 

Speaking at an Australian Professional Indemnity Group seminar in Melbourne last week, Dr Roberts told an audience of lawyers, engineers, accountants and representatives of professional groups that PI insurers are paying out 45% more than they are receiving in premiums. “PI insurance is actually under-priced by about 50%, and the current level of underwriting loss is simply unsustainable and must be reversed if the insurance industry is to remain adequately capitalised into the future,” he said.

He said PI premium rises aren’t only attributable to reinsurers trying to recover from the losses of September 11: the Australian public’s “slip and sue” mentality has also played a major role in worsening the issue.

Dr Roberts advised brokers against resorting to using unauthorised foreign insurers as a reaction to the problem, but he didn’t offer any short-term solutions to the problem, either.

Nor does APRA have any immediate plans to combat the PI problem. He said the way to head toward more affordable PI insurance is “comprehensive tort law reform by the states, alternative dispute resolution arrangements that avoid litigation costs and, finally, self-regulation by the professions to mitigate risk and reduce the incidence and severity of adverse outcomes”.